Investopedia: Broadcom Assigns A Lot Of Value To Expansion

The market may not be willing to value semiconductor stocks at the same rate as just a year ago, but industry insiders have no such problem. Broadcom (Nasdaq:BRCM) announced a deal for high-performance processor company NetLogic (Nasdaq: NETL) on Monday that gives the selling shareholders a premium valuation that accounts for a lot of the growth potential of the company.


Broadcom's Deal
Broadcom announced that it will pay $50 a share, or $3.7 billion in total net cash, for the shares of NetLogic. That is a 57% premium to the Friday closing price of NetLogic, as well as a price that exceeds NetLogic's all-time high and roughly matches the high watermarks for price-sales valuation.

NetLogic has generated a little more than $400 million in revenue over the past year, with a trailing growth rate in the high single digits. That may not sound so impressive, but that has been accomplished in an environment where end-use customers like Cisco (Nasdaq:CSCO), Juniper (Nasdaq:JNPR), and Alcatel-Lucent (NYSE:ALU) have seeing some pretty tough markets. While the three to five year growth rate estimates provided by sell-side analysts are near worthless, the fact remains that the sell-side community expects NetLogic to grow at a high-teens clip for several years (and the valuation suggests similar, or greater, expectations from the buy side).




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